NEW DELHI:Indiais hoping to secure oil and gas exploration blocks inAfghanistanon the basis of its goodwill with the country, while it may also participate in the upcoming auction of six blocks to the north of Mazar-i-Sharif, officials said.
An Indian delegation, including officials from state-run explorer Oil & Natural Gas Corp, is expected to visitAfghanistansoon on invitation from its mines minister, two Indian officials said on condition of anonymity.
Officials said they were hoping to get some prospective blocks inAfghanistanwithout participating in the bidding process because of the goodwill thatIndiahas generated in the country. It is also expected that Indian firms will commit investments inAfghanistanto get blocks on nomination basis, they added.
India, one of the largest aid donors to war-ravagedAfghanistan, has lagged behindChinain the race for acquiring oil and gas assets in the region. Last year,Chinabagged three energy blocks in theAmu Daryabasin after promising to invest in a refinery there.
New Delhiis keen on lie near the border toTurkmenistan, which has the world’s fourth largest reserve of natural gas. “The block is very close toTurkmenistan’s gas-rich region and experts say the gas reservoirs could be extended to theAfghanistanside,” one official said.
Turkmenistanhas proven gas reserves of about 265 trillion cubic feet. The oil and gas potential ofAfghanistanis not fully established yet.
Indiais also keen on joining the second round of bidding for energy blocks this time in the Afghan-Tajik-basin, having missed the first. ONGC’s foreign arm, ONGC Videsh, is considering participating in the auction of the six exploration blocks offered, the officials said.The last date for submission of expression of interest is June 30.
Announcing the new blocks it was putting up for grabs at a conference inLondonin March,Afghanistan’s Mines Minister, Wahidullah Shahrani said that there were over 60 potential hydrocarbon-bearing structures in these.
PETROL PRICE: PRANAB MUKHERJEE FAVOURS 25% CUT IN STATES TAXES
NEW DELHI: Finance Minister Pranab Mukherjee today made out a strong case for a 25 per reduction of taxes levied by states on petrol to bring down its price.
Speaking at the day-long meeting of the Congress Working Committee (CWC), he justified the high price of petrol because of the overall international price of crude.
He said the states needed to also do their bit on reduction of petrol price.
Corruption and price rise were the most important issues during the discussion at the CWC.
KPCC President Ramesh Chennithala attacked the petroleum companies for raising the petrol prices, especially at a time when Kerala was witnessing a bye election, that put the party in trouble.
He wanted the government to take back the power to decide oil prices.
GAS SHORTAGE HITS POWER PLANS
NEW DELHI: Over a decade after privatization of the power sector,Delhi’s own power generation remains short of meeting the growing electricity demands.
One of the reasons for this isDelhigovernment’s inability to procure gas for its power plants, which has rendered them unable to generate at full capacity. Hopes were pinned on the 750-MW Pragati phase II plant at Bamnauli and the 1,500-MW Pragati phase III in Bawana to meet the capital’s growing electricity demands, but an acute shortage of gas has left the Bawana power plant lying idle even after commissioning its first cycle and work on the Bamnauli project indefinitely stalled.
Currently, out of the six power stations that supply electricity solely toDelhi, four are sourced from gas. Coal-based Indraprastha power station shut shop in 2010 and another thermal station – Rajghat power house – with an installed capacity of 135 MW is also due to close operations soon. There are also plans to convert three out of five units at NTPC’s coal-based Badarpur power station to gas. “The government is phasing out coal-based power stations forDelhidue to environment concerns. But with gas shortage looming large, production by gas stations is severely limited. There is hardly any gas available in the country and the cost of producing power from imported gas will make it too expensive,” said a senior official.
Chief minister Sheila Dikshit admits there are concerns over gas availability.Delhihas been seeing a new high in power consumption almost every other day, and the city desperately needs power from every source to meet this demand. Monday saw a peak demand of 5,166 MW, which is expected to go higher in the coming days. Already power cuts all across the city have been making the summer unbearable for Delhiites. “The northern grid is already burdened by neighbouring states soDelhicannot depend too much on the grid. The only way out is to increase the city’s own generation,” said an official.
The Bawana power project, built at a cost of Rs 4,500 crore, could be producing at least 750 MW from the first cycle had there been enough gas. Yet, it has barely managed to produce 300 MW and on Monday, the plant was not generating any power at all. On Monday, Dikshit assured that the obstruction in the way of gas for the mega power plant has been removed and gas has been arranged for the plant. “The Bawana plant was allocated gas from Reliance’s Andhra Offshore Gas KG-D6 Fields but the company failed to provide the fuel. RIL claimed that there was a drop in production of gas from their fields so they could not supply the promised volume. Matters came to such a pass that the Bawana plant had to procure imported re-gasified LNG at market price to test two gas turbines of 250 MW each in October 2010 and February 2011,” said a source.
Similarly, the proposed power plant at Bamnauli is also stuck as the government has been unable to tie-up any gas for the plant, an official said. Tata Delhi Power’s 108-MW plant in Rithala is another gas plant that has been severely affected due to gas shortage. A Tata official said they are barely getting gas supply from KG-Basin and GAIL for 30-35% of the plant’s capacity, so they are not able to generate as much as the plant’s potential.
There is hardly any gas available in the country and the cost of producing power from imported gas will make it too expensive.
WHY DIESEL & KEROSENE ARE A DRAG ON STATE OIL COMPANIES’ FINANCES
Brent crude oil prices dipped below $96 a barrel on Monday, plunging to the lowest in 18 months. Petrol prices inIndiaare higher than what was prevailing when crude oil last touched this level, even after accounting for the depreciation of the rupee.
State oil companies aim to price transport fuel at a level roughly equivalent to the landed cost of notional imports. This target price is about $19 more than the cost of Brent crude in the case of petrol.
Globally, petrol’s premium to Brent, dropped to $10.14 a barrel in June, according to agency reports. For diesel, the global benchmark of refining profitability, called “gasoil crack” is below $15.
InIndia, state oil marketing firms seek a much higher target price for petrol. The story is different for diesel, where current retail prices are a fraction below the cost of Brent, and higher than some grades ofMiddle Eastcrude that they process.
For kerosene, the retail price is dramatically lower than the cost of crude oil. Here are the details of the price components of the three liquid fuels, which show that petrol is hugely profitable while the other two liquids are a drag on the finances of state firms.
COORDINATED FUEL PRICE TWEAKS GRAB CCI ATTENTION
NEW DELHI: At a time when dissenting voices are emerging from the Cabinet over the recent steep hike in petrol price, the competition regulator has started a dialogue with the government on what it perceives as anti-competitive behaviour by the three public sector oil marketing companies.
The Competition Commission of India has written to the government on this issue, a senior official told FE.
The regulator reckons that these companies revising petrol prices in tandem and roughly by the same measure is a case of policy-induced market distortion, the senior government functionary said.
The source said CCI has raised “a number of issues” regarding the fuel market. As far as the Competition Act is concerned, the pertinent issue is the harmful impact of subsidies on the market – it distorts prices and artificially boosts consumption of diesel which harms the environment more than petrol. Further, the regulator feels since the subsidies are available to only some players – the PSU oil companies – , an entry barrier is created for other (private) players who don’t find the fuel marketing business profitable for lack of a level playing-field.
The regulator feels the OMCs have an understanding among them when it comes to pricing petrol, which is in violation of the Competition Act. “Now that some kind of free float of petrol price is allowed (after the deregulation in June 2011), even as the prices of other fuels (diesel, LPG and PDS kerosene) are controlled, it is vital to examine where the distortion starts,” the source said, quoting the CCI. “CCI has started a dialogue with the government, not with companies, because the distortions in the oil sector are policy-induced,” said the source.
State-run OMCs raised petrol prices on May 23 by Rs 7.5-8 a litre across the country and after a fall in global crude oil price, effected reductions of about Rs 2 a litre on Saturday.
Several kinds of agreements between market players (including those which are not formal or in-writing or intended to be enforced in law) which have “appreciable adverse effect on competition,” are considered anti-competitive and void under the Competition Act. In the case of OMCs, the agreement is apparently to fix prices.
According to analysts, while the subsidy system has distortedIndia’s fuel market and undermined competition, there exists healthy competition in the markets of many countries. In theUS, for instance, prices are different for different players because the companies compete, drawing on their efficiency.
The majority shareholder in fuel retailers IOC, HPCL and BPCL is the sovereign government, leaving little scope for their managements to take an independent view. The regulator, which has the powers of a civil court, is empowered to fine each member of a cartel a penalty up to three times its profit for each of the year the cartel is in existence or 10% of the turnover for each year, whichever is higher.
Companies obviously consult each other as well as the petroleum ministry while deciding price revisions. The regulator is also empowered to take action against a government department, but it will also take into account the fact that certain pricing practices are part of state policy to protect consumer interest.
Exclusion of private sector companies like Reliance Industries and Essar Oil from subsidy payments to sell fuel at regulated prices has created entry barriers as private firms cannot match the regulated price of state-run companies like IOC, HPCL and BPCL. In order to avoid losses in the domestic fuel market, the private sector now focuses on fuel exports. Filling stations set up by private players like Reliance, when administered pricing was briefly dismantled a few years ago, are now used to store grains during the harvest season.
Such monopoly entitles state-run companies to the import parity price of fuel as more efficient private refiner-cum-retailers who are capable of selling petrol, diesel, LPG and kerosene below import prices are kept out of the market. Private players, who get better revenue from their crude oil refining operations (gross refining margin) due to their ability to process heavy and high sulphur crude are capable of undercutting state-owned firms who get poor refining margins of about $3 a barrel due to obsolete technology.
Demanding more transparency from oil firms, cabinet minister Vayalar Ravi has already asked for a review of the way companies compute their losses from selling fuel at regulated prices.
The regulator has also asked the government to look into the disparity in the free-floating pricing of petrol and the administered price of diesel that has created a distortion in the fuel and automobile markets. “The pricing policy distorts market prices in favour of diesel although its emissions are more harmful to environment than petrol,” said the source, who is privy to the discussions.
FALLING OIL PRICES TO EASE PRESSURE ON RUPEE, CUT CAD: GOPALAN
NEW DELHI: The recent fall in global crude oil prices may ease pressure on the depreciating rupee and rein in a galloping current account deficit (CAD), economic affairs secretary R Gopalan said on Monday.
“The good thing is that crude prices are going down. So that has some positive for us,” Gopalan said.
Global crude oil prices have tumbled by 17% since April to around $98 per barrel, as a deepening global macro-economic crisis has threatened to drag down demand.
The country’s CAD surged to an unprecedented level of 4.3% of the gross domestic product from 2.9% in the previous fiscal, thanks to a trade deficit of $184.9 billion in 2011-12 following record crude oil and bullion imports. The current account comprises the balance of trade, net factor income such as interest and dividends and net transfer payments.
Indiaimported crude oil worth $155.6 billion in the fiscal year through March, up nearly 47% from a year before, while record bullion purchases from overseas worth $58 billion jeopardised trade balance and contributed in good measures to the weakening currency. The Indian currency has depreciated by 25% since last July to 55.66 on Monday against the dollar, driving up import costs. “The Reserve Bank Of India is constantly monitoring the exchange rate,” Gopalan said.
“We were highly dependent on oil import . and since there is a sharp correction in crude oil price it is certainly a positive sign and will help in reducing the CAD but the issue is how long it is going to hold. Our projection is that CAD will be around 3.6% by the end of this fiscal,” said Crisil chief economist DK Joshi.
The contraction in non-oil imports will be driven by a steep fall in the rupee against the greenback, falling commodity prices and subdued investment inflows, Nomura has said in a recent note.
Policymakers have been particularly worried about huge imports of an idle asset like gold driving up the CAD. Gold demand in India, the world’s largest consumer, fell 3% in value during the January-Match period to R56,650 crore, although in volume term, the slump was more pronounced at 29%, thanks to elevated level of prices and a strike by jewellers in March. Gold prices rose 32% in the Indian currency in 2011, and gained for an eleventh straight year, making the precious metal an attractive tool for investment in times of an economic crisis.
“…if the imported cost of the materials also go down, then imported inflation could be contained. And to that extent, inflation numbers would also come down,” Gopalan said.
Inflation rose 7.23% in April from 6.89% in the previous month on dearer food and manufactured items.
Meanwhile, Finance minister Pranab Mukherjee on Monday expressed the hope that the indirect tax mop-up of R5.05 lakh crore for the current financial year would be met despite a slowdown in growth.
“They (revenue officials) did a good job last year. This year also, I do hope it would be possible for them to do their job and realise the revenue target which has been fixed for them,” finance minister told reporters after addressing a meeting of officials of the Central Board of Excise and Customs (CBEC).
PETROLEUM BOARD SEEKS VIEWS OF ADDITIONAL SOLICITOR GENERAL ON COURT ORDER
NEW DELHI: The Petroleum and Natural Gas Regulatory Board (PNGRB) has sought legal opinion from the Additional Solicitor General on the recent Delhi High Court verdict that quashed the Board’s order.
The Delhi High Court on June 1 quashed PNGRB order of April 9 that would have resulted in Indraprastha Gas Ltd (IGL) charging lower transmission tariff. Sources said that Mr Amarjeet Singh Chandhiok, ASG, explained to the Board the implications of the High Court verdict and if there are any valid grounds on the basis of which the High Court order can be contested in a higher court.
“The Board would review Mr Chandhiok’s report and then decide on its further move. Simultaneously, the Board is also discussing the outcome with the nodal Oil Ministry,” the official added.
If the Board’s order were to be implemented, IGL’s transmission tariff would have come down to Rs 38.58 for every million British thermal unit against Rs 104.05 that it charges now. Also, CNG compression tariff was pegged at Rs 2.75 a kg according to the order. IGL charges Rs 6.66. These rates are to be retrospectively applicable from April 1, 2008.
A primary hitch that could impact PNGRB’s further course of action is non-notification of Section 11 (F) of the PNGRB Act 2006. This section empowers the regulator to fix tariffs and monitor prices to prevent restrictive trade practices.
“The Government is yet to notify Section 11 (F) even after more than five years of existence of the regulator,” the official said.
PRICE POOLING FOR POWER SECTOR: GAS PRODUCERS MAY HAVE TO SELL ENTIRE OUTPUT TO GAIL
CHENNAI/NEWDELHI: Gas producers marketing their output directly to domestic power plants may no longer have the option of choosing the buyer in the near future.
The Government is considering a proposal for allocation of all domestic gas, besides imported gas (R-LNG) intended for supply to power producers, to public sector GAIL (India) for the purpose of price pooling.
It has already received a green signal on the proposal from the Department of Legal Affairs. The Department has opined that “since the proposal for gas price pooling through GAIL is a matter of policy, for the best utilisation of the natural resources vested in the Union Government and for ensuring uniformity with regard to canalising the natural gas produced under different Production Sharing Contracts, there appears to be no legal objection.”
However, there are a few stumbling blocks in the way of the proposal, one of them being treatment of domestic gas being sold under Administered Pricing Mechanism (APM) from fields awarded to ONGC and OilIndiaon nomination basis. This gas, at administered price, is significantly cheaper than the imported gas. It is mainly sold to the power and fertiliser sectors, but also supplied to small-scale industries and units.
In addition, allocation of the entire quantum of gas from Reliance Industries Ltd’s KG-D6 field to GAIL may be problematic: the production sharing contract states that such assignment can only be done to an affiliate. In case this is to be pursued, the Empowered Group of Ministers might have to come into the picture and issue a suitable directive.
Establishing such a pricing mechanism will necessitate the creation of a gas pool account with GAIL for monthly accounting and weighted average price communication to all producers. It is still to be worked out whether this can be done within the existing gas purchase agreements or new pacts will have to be signed.
Furthermore, the gas sale agreements (GSA) inked between GAIL and power producers, besides the distribution major’s gas transportation agreement for KG-D6 gas will have to be amended to reflect the new pooled pricing. The plan is to allow GAIL to levy a marketing margin on the gas allocated to it for its services.
It may be some more time before the modalities of the proposal are ironed out.
BRENT CRUDE FALLS TO 16-MONTH LOW ON BLEAK US, CHINA DATA
Brent crude extended losses to hit a 16-month low below $96 a barrel on Monday, as weak US and Chinese economic data fanned renewed fears of a global economic slowdown, which would hit oil demand.
UScrude fell $0.87 to $82.36 a barrel after tumbling as low as $81.32 earlier in the session, its lowest level since last October.
Market sentiment is still negative. The price is still falling despite the big sell off last week. Risk aversion is still on, Carsten Fritsch, oil and commodities analysts with Commerzbank said.
Oil ended May with the biggest monthly loss since December 2008 as Europe’s ever-deepening debt crisis, poorUSjobs data and increasing signs of economic slowdown inChinaaccelerated global cross market sell off.
A poor jobs market and a slowdown in manufacturing could lead to a drop in oil demand from consumers and industries alike.
Speculators cut their net long positions in Brent crude and US crude futures in the week to May 29, figures separately issued by the Intercontinental Exchange (ICE) and US Commodity Futures Trading Commission (CFTC) showed.
Global shares tumbled as investors fled from risky assets.
InEurope, the centre of the spreading debt crisis, the Euro STOXX 50 stock index dipped slightly at the opening, but it bounced back on the increased likelihood of policy action from global central banks.
Safe haven US and German government bond yields held near Friday’s record lows.,
Tokyo’s Topix index fell to a 28-year low of 693.26 while S&P 500 futures fell 0.7%, indicating yet more selling when investors wake up inNorth America.
Several monetary policy meetings are due this week, including of the European Central Bank on Wednesday and the Bank of England on Thursday, with investors watching for clues on how they will address global growth issues.
US Federal Reserve chairman Ben Bernanke will testify on Thursday before a congressional panel about the state of theU.S.economy.
Economic worries and decades-high crude production from Opec powerSaudi Arabiahave overshadowed a possible disruption of Iranian supplies due to Western sanctions againstTehran. In May, both Brent andUScrude posted their biggest monthly losses since late 2008.
With maximum production out of Opec and global inventories built up, we are not likely to get a shortage situation, said Victor Shum, senior partner at oil consultancy Purvin & Gertz.Saudi Arabiahas definitely prepared for the possible loss of Iranian supplies.
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